Britain's ailing pound sterling -- battered to record lows seemingly every day recently -- was almost dealt a knock-out blow last week from a most unlikely corner: the press office of No. 10 Downing Street, home and headquarters of Prime Minister Margaret Thatcher.
To be sure, any damage done to the pound by the government's top-ranking press officer, who apparently hadn't gotten the latest word from Thatcher, was unintended and short-lived.
But the episode nevertheless eventually resulted in an important shift in British policy toward defense of the pound being made public and shed more light on the degree of secrecy and lack of official attribution under which the British government and much of the British press operate.
Paradoxically, the enormous attention to the plight of the pound that has emerged in the wake of last week's events -- sparked by the appearance of some prominent but inaccurate front-page stories resulting from the Downing Street briefings -- has probably produced more understanding in one week about the pound's problems and potential than during the previous several years of the currency's slide.
Since November 1980, when the pound was worth $2.43, it has dropped to where it is now worth $1.12. It has lost 23 percent of its value in just the last 13 months, and on Jan. 11, it hit $1.11.
That day, the British Treasury agreed, without much fanfare, to a 1 percent hike in interest rates in an effort to stop the pound's decline. Hiking interest rates means more pounds stay in Britain rather than being sold for dollars to invest in high-interest deposits in the United States.
Until that time, the clear policy of the Thatcher government and the Bank of England, both firm believers in market forces setting exchange rates, had been to let the pound find its own level and not intervene in markets. Indeed, the falling pound had some advantages in making British exports cheaper and more competitive.
A week earlier, Thatcher's press officer had privately reiterated the hands-off policy and was quoted, though not by name, in The Sunday Times of Jan. 6 as saying the prime minister had "firmly rejected interest increases to support the pound."
Then, on Jan 11, briefing political reporters privately again for the weekend papers, the press officer, Bernard Ingham, also reportedly told them once again that Thatcher would not throw money at the pound and would not object to the once unthinkable idea that one pound would equal one dollar.
The story produced big headlines in The Sunday Times and Sunday Telegraph on Jan. 13 and broadcasts on British Broadcasting Corp. to the effect that "Thatcher ready to let pound equal dollar," as The Times' headline put it. Unfortunately, those stories were wrong, as the government that weekend had begun to switch from a policy of benign neglect to its first staunch defense of the pound.
One Sunday newspaper, The Observer, got it right by talking to people other than Thatcher's press secretary. But the other headlines and BBC broadcasts horrified Thatcher and her financial aides. Financial analysts said it appeared to give currency speculators a "one-way option" to make a killing because instead of saying nothing, the government was saying it wasn't going to defend sterling and didn't care if it dropped. That meant a sure thing in terms of selling it, they noted.
The pound dipped on Monday to $1.10. But then interest rates were raised another 1 1/2 percent and the pound has held roughly steady at $1.12 since then.
Because Britian's press operates on the so-called "lobby" system in which large groups of reporters have access to top officials but on a strictly not-for-attribution basis, it is not known exactly what Ingham said.
"One would like to be fair to Mr. Ingham by quoting his exact words," wrote Samuel Brittain in The Financial Times. "But the restrictive practice known as the lobby system, used by ministers and their acolytes to plant stories without taking responsibility for them, makes this impossible."
Ingham is a well-informed, articulate and candid spokesman who knows Thatcher well and may either have been trying to soothe reporters, preserve Thatcher's image of sticking to her guns or simply didn't know things were changing.
Today, The Economist magazine reported that the degree of official secrecy went well beyond Downing Street. Before the disastrous weekend of Jan. 12-13, the magazine reported, fears of a leak about the forthcoming budget in March produced written orders from the Treasury for its officials not to talk to reporters -- another factor that inhibited understanding of what was happening to sterling.
"This government's obsession with official secrecy has now ingloriously hoist it upon its own petard. It has yet to learn that annoying leaks are the price of useful ones -- and, more important, that they are the price of an intelligent press equipped to understand nuances at difficult moments in national affairs like a sterling crisis," The Economist said.
In the aftermath of these events, Thatcher has now come out strongly and publicly in support of the pound. But the episode has added to the sense of confusion about government policies that many market analysts say is a key factor depressing the pound.
The confusion in financial markets, the analysts said, is also over whether the government can stick to its tight monetary and public spending policies, both of which have been overshooting their marks, they said.
That Thatcher is now publicly committed to defending the pound may be the most important new factor in actually stemming the decline, analysts noted. But the most important overall factor for all currencies is the strength of the dollar and there is little Britain or any country can do if the U.S. currency keeps getting stronger on its own.
Thus Thatcher, perhaps forced by the press office slip-ups into a stronger defense of the pound than she would have preferred, is taking political risks since the pound could continue to drop because of inherent dollar strength rather than because of her policies. Yet, analysts feel the public would perceive it as failure of another announced policy.
"I do care about it the pound falling. I care very much," Thatcher told a television interviewer last night. "But there are only certain things we can do and those things we did. Just try to talk sterling up," she admonished the interviewer at one point. "That is good. Don't run it down."
"One day," she said, "the surge of the dollar will stop. . . and it could fall quite sharply. I think people are undervaluing sterling very considerably. . .and one day speculators will get their fingers burned. What they are doing is not justified by the underlying performance of the British economy, by the firmness of the government in holding public spending and inflation down.
"We have the highest gross national product. . .investment. . .retail sales ever," she said, with North Sea oil adding a 5 percent "bonus" to gross national product. Individual productivity is up 15 percent and nonoil exports are up 11.5 percent, she said.
Virtually all experts agree that the pound is undervalued. A recent assessment by the Organization for Economic Cooperation and Development estimated the pound should be worth $1.82. One pound in Britain these days appears to buy a lot more than $1.12 in the United States.
There also is no doubt that Britain's inflation of just under 5 percent and slow but steady economic growth has been positive.
But there is more to it. While exports have increased, they have done so because the country's currency is worth so much less. Even with this advantage, Britain's exports have risen far more slowly than those of Japan, France and Germany and the overall British share of world exports continues to decline.
For the first time ever, Britain's 1983 balance of trade in non-oil manufactured goods fell into deficit.
Britain's bonanza of North Sea oil revenue, now estimated to be worth more than $13 billion this fiscal year, is a mixed blessing. It has made the pound a petro-currency, so declining oil prices tend to depress the pound. Yet, while the price of oil declines, the dollars that people pay for it are worth more pounds then ever before, so the British Treasury benefits.
In the long run, what is more important is a continuing argument here over what happens when the oil runs out. Has the government used the oil revenue to build new and more competitive industries, as Thatcher claims is happening, or, as her opponents claim, to obscure the financial and economic decay of the country, as perhaps partially reflected in the declining pound?
Furthermore, as her television interviewer asked, how does Thatcher know that British industry is capable of doing what she wants, or has been galvanized to do it? "Oh yes we have. Oh yes we have," the prime minister said, pointing to rising profits and investments.
The costs of a now almost 11-month-old British coal miners' strike, according to Treasury chief Nigel Lawson, has "dragged down" the rate of British economic growth in 1984 from what would have been a European high of 3 percent to 1 1/2 percent.
That strike and other stoppages have rekindled the view abroad of Britain as a strike-bound country and may also contibute to the pound's decline and to some loss of confidence abroad, even though at home the likelihood of a government victory over the miners is viewed as a long-term plus for business.
When Thatcher came to power in 1979, the pound was worth $2 and unemployment was 5.3 percent. Today, there are 13 percent -- more than 3 million people -- unemployed, part of the price of bringing inflation way down.
In deciding to raise interest rates to stem the decline of the pound, the government is taking a risk of rekindling inflation at home via rising prices. But analysts say that the risk of higher inflation being imported by the ever weaker pound was greater and that the interest rate measures at home can be only temporary.
While not stated officially, many here also say the symbol of a nation's currency seemingly in inexorable decline, with no attempt at defense, is also one that can erode confidence in a country, whether or not the underlying economic statistics justify such a conclusion.